Starting a Business: Which Countries make it the easiest? What Policymakers and Legislators Can Learn From the World Bank’s New Reports
by Maika Chiquier, Private Sector Development Specialist at The World Bank
During her 2016 Presidential Campaign, Hillary Clinton asked an intriguing question: “How come it is easier to start a business in Canada than it is in the US?”
It’s hard enough to develop an idea for a new business and come up with a plan to really make a go of it. Once those tasks are tackled, how easy does the entrepreneur’s country make it to get that business going from the ground up? How can policymakers around the world make it easier for a small business to get started?
This is a key question for policymakers looking to enhance their business environment and improve their country’s or region’s economy. Many legislators may ask their legislative counsel for advice on legislative proposals to boost economic development. The World Bank has provided drafters with a useful resource to keep close by when those proposals land on your desk.
Countries seeking to improve their business environment through law reform or otherwise can check a very helpful resource to see how their country supports its fledgling businesses. The World Bank Group project's annual report titled Doing Business (DB) outlines where a country ranks on ease of starting a business…and more important, why.
For the past 17 years, The World Bank Group project has published this annual evaluation of the ease of doing business in all countries worldwide, through the spectrum of small and medium enterprises.
This flagship World Bank Group publication has measured both regulations that enhance business activity and those that constrain it, presenting quantitative indicators on business regulations.
World Bank, Washington DC photo from World Bank website
A New Pilot: the Business Ready (B-Ready) Report:
In 2022, the World Bank Group (WBG) formulated a new approach to assessing the business and investment climate in economies worldwide. It developed an updated version, Business Ready (B-Ready), which is currently in its pilot phase, and aims to evaluate the business regulatory framework in most economies worldwide over the next 3 years.
The B-Ready report will apply a homogeneous methodology across economies of different geographic locations, income levels, and development status to understand the gaps that economies in all stages of development can aspire to close. The dual purpose of the B-Ready report is:
(i) to promote economic reforms, opening the door for knowledge sharing/policy dialogue for governments, civil society (including the private sector), WBG, and other development institutions; and
(ii) to provide information for specific policy advice, covering a wide spectrum of areas relevant to firms/markets and showing how and by how much economies lag behind good practices.
The B-Ready report will evaluate the ease of doing business in each economy based on ten indicators grouped in three areas, including:
I. How easy it is to open a business:
How easy is it to register a new company
How easy it is to purchase and transfer property and obtain construction permits
II. How easy it is to operate a business and expand it, measured by such sub-indicators as:
How easy it is to obtain connection to utilities
How easy it is to hire/fire workers
Quality and efficiency of financial services
Efficiency of international trade
Ease of paying taxes
Ease of resolving disputes in court
Soundness of market competition
III. How easy it to close the business
Legal framework of business insolvency.
Take a Closer Look:
In the U.S., the U.S. Chamber of Commerce Small Business Data Center reported that in the U.S., “[i]n 2021 alone, a record breaking 5.4 million new business applications were filed, and nearly as many 5.1 million were filed in 2022.” The Chamber’s website provides an interactvie map to track the latest data on the surge in entrepreneurship in each U.S. state and county across the country.
Each of the above topics will be evaluated from the perspective of three pillars:
1. Regulatory Framework
a. Rules and regulations that firms must follow as they open, operate and close business will be evaluated.
b. For instance, for the Business Entry indicator, the report will evaluate if it is mandatory to verify the company’s name or pay a minimum capital before registering a company
c. For Dispute Resolution, the report will evaluate procedural rules to conduct in-court litigation, as well as referring cases to alternative dispute resolution.
2. Public Services
a. The report will evaluate Government provided facilities for compliance with regulations, as well as business enabling public institutions and infrastructure, including e-government and digital services.
b. For the Business Entry indicator, the report will evaluate availability of e-payment of incorporation fees or public access to companies’ information.
c. For the Dispute Resolutions indicator, the report will evaluate the availability of e-services in commercial dispute resolution, as well as whether any performance reports on court activities, including statistics, are published.
2. Efficiency
a. This pilar will measure the efficiency with which the regulator framework and public services are combined in practice.
b. For instance, for the Business Entry indicator, the report will evaluate the time needed for company name verification or costs of company registration.
c. For the Dispute Resolution indicator, the report will measure the time needed to enforce the court’s decision as well as cost of a court trial.
d. In the case of the Dispute Resolution indicator, the time needed to enforce the court’s decision will be measured as well as cost of a court trial.
The B-Ready report also supports social and economic research on drivers and consequences of private sector development. The wide-ranging report will ultimately cover almost all countries globally and offer a comparison on both the ease of doing business for firms, and also on their social benefits. Countries will receive scores on whether a given reform or existing environment contributes to firm flexibility. Scores also will be given for broader social benefits, such as employment, environment protection and transparency.
Data for the report will be collected from the existing laws and regulations (de jure) as well as their practical implementations (de facto).[i]
Scoring
The report will apply a single numerical score for each economy and each topic. Scores assigned to each of the three pillars will be summed up from points awarded at the disaggregated indicator level, considering the perspective of entrepreneurs (firm flexibility) and broader public interests (social benefits). The allocation of points to firm flexibility and/or social benefits will be assigned based on academic literature and well-founded good practices.
So where does the United States stand in the last available ranking published in the previous report, Doing Business 2020? The United States ranks 55 out of 191 economies in the Starting a Business indicator where it takes 4 days and 6 procedures to register a company in New York, whereas Canada ranks 5 (with only one day and a half and 2 procedures needed to register a company) (See Table below.) The country where it is the easiest to start a company is New Zealand where it takes only half-a-day and one procedure online to register a company.
Source: The World Bank, Doing Business 2020.
Resources to support legislation that helps businesses develop:
Legislation to improve the economy is a common theme in worldwide legislative bodies. Given the importance of new businesses to economic development worldwide, policy makers and legislative drafters may be asked for advice on what types of policies or legislation might work best. The annual Business Enabling Environment reports will continue to be a great resource for drafters.
Working hard to support business:
Given the pivotal importance to the world economy of starting businesses, it will be interesting to watch what reforms and improvements have taken place in economies worldwide, as measured by the annual Business Enabling Environment report. We look forward to sharing any updates
The 2020 Winner: New Zealand
There are approximately 546,000 small businesses in New Zealand representing 97% of all firms. They account for 29.3% of employment and contribute over a quarter of New Zealand’s gross domestic product (GDP).
[i] In collecting the data, a combined approach to improve the comparability and representatives will be applied, taking into consideration both expert consultations and firm surveys. Experts who regularly deal with relevant legal arrangements, public services and institutions providing these services will be approached in the process of data collection. On top of that, the BEE will collect data from a representative sample of actual formal firms, focusing on de facto information.
The report will not cover macroeconomic conditions, human capital, government corruption and accountability, or conflict, crime, and violence. Similarly, it will not cover gender variations as those aspects are already covered by Women, Business, and the Law (WBL), specifically designed to assess women’s economic empowerment.